Boards of a feather: Homophily in foreign director appointments around the world

Abstract

We examine how similarity in institutional, legal, and social characteristics between a firm’s and its directors’ home countries, i.e., country-pair homophily, affects foreign director appointments. We estimate a gravity model that includes economic and geographic proximity and find that country-pair homophily is a significant determinant of foreign director appointments to corporate boards. We also find that country-pair homophily affects the appointments of foreign directors originating from high at firm located in low governance countries, which may limit the role of board internationalization in the global convergence of governance practices. We utilize the international IFRS adoption and Norway’s gender-quota rule to observe variation in foreign director appointments and assess the importance of country-pair homophily to explain that variation. We find that both events led firms to appoint more foreign directors originating from countries that are institutionally, socially, and culturally more similar to their own domicile country, attesting to the importance of homophily in foreign director appointments.